Answer to Question #285136 in Finance for Muneeba

Question

Your firm, People’s Consulting Group, has been asked to consult on a potential pre￾ferred stock offering by Brave New World. This 15% preferred stock issue would be

sold at its par value of $35 per share. Flotation costs would total $3 per share.

Calculate the cost of this preferred stock.

Answer 1

Solution:

Cost of Preferred Stock = Preferred Stock Dividend Per Share (DPS) $\div$ Current Price of Preferred Stock

 

Preferred Stock Dividend Per Share (DPS) = $35

Current Price of Preferred Stock = $3

 

Cost of Preferred Stock = 35 $\div$ 3 = $11.67